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Executive Summary

Davis Financial Fund achieved a double digit 10-year
annualized return ending 2018, despite generating
a negative return for the year 2018 as investor fears
of an economic downturn led to a sharp sell-off in
financial stocks late in the year.1

With memories of
the 2007–2008 financial crisis still vivid in many
investors’ minds, the fear a future recession will lead
to substantial and permanent destruction of value
in financial stocks is understandable but we feel
misplaced. Unlike 2007, today’s leading financial
companies are far stronger, more cautious and
better positioned than any other time in memory.
As a result, the recent sell-off has created what we
believe to be an opportunity for investors to take
advantage of this misperception.

The performance presented represents past performance and is not a guarantee of future results. Total
return assumes reinvestment of dividends and capital gain distributions. Investment return and principal value
will vary so that, when redeemed, an investor’s shares may be worth more or less than their original cost. The
total annual operating expense ratio for Class A shares as of the most recent prospectus was 0.94%. The total
annual operating expense ratio may vary in future years. Returns and expenses for other classes of shares will
vary. Current performance may be higher or lower than the performance quoted. For most recent month-end
performance, click here or call 800-279-0279.

Given today’s low prices, we believe the carefully
selected companies that comprise Davis Financial
Fund will generate strong relative and absolute
returns over the next decade for the simple reason
they combine extremely durable business models,
the strongest balance sheets in half a century,
resilient earnings, good returns on equity, rising
dividends, falling share counts, and low valuations.2
With more than $65 million of our own money
invested alongside shareholders, our family and
colleagues have put our money where our mouth
is and look forward to building on the Fund’s strong
long-term record in the years ahead.3

This report includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions;
however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. Equity markets are volatile and an investor may lose
money. This is not a recommendation to buy, sell or hold any specific security. Past performance is not a guarantee of future results.1 Class A shares
without a sales charge. Past performance is not a guarantee of future results.2 While very few companies have all of these characteristics, we search
for those possessing several of these characteristics, or an appropriate combination of these characteristics. 3 As of December 31, 2018. Includes the
Davis family, Davis Advisors, and our employees.

Results and Outlook

Since its launch in 1991, Davis Financial Fund has
compounded shareholder wealth at more than 11%
per year, outpacing both the S&P 500 Index as well
as the S&P 500 Financials Index after all fees.4 As
shown in the chart below, a $10,000 investment
would now be worth more than $180,000, 57%
more than a comparable amount invested in the
S&P 500 Index and 82% more than a comparable
amount invested in the S&P 500 Financials Index.4
Over the last decade, the Fund has compounded
at 12.3% per year, more than tripling the value of a
$10,000 initial investment. This result outpaces the
S&P 500 Financials Index by approximately 1.5%
per year after fees.4

In 2018, despite strong earnings and improved
balance sheets of most financial companies,
investors became nervous about the economy and
drove down share prices of financial companies
more than 20% on average from their midyear highs
and roughly 13% for the year 2018. While Davis
Financial Fund declined somewhat less than the
S&P 500 Financials Index, the Fund still generated
a negative one-year return of −11.8%.4

While short-term price changes rarely mean much,
often information can be gleaned by examining the
underlying market dynamics during such periods.
In this case, our analysis is reassuring. For reasons
we will discuss, our analysis indicates the recent
price declines in the face of strong fundamentals
have created an enormous opportunity for long-term
investors. In fact, financial stocks are now priced at
their most attractive level in many years especially
relative to some of the overpriced market darlings.
As a result, we believe shares of select financial companies
are poised for a prolonged period of strong
relative and absolute returns in the years ahead.

Beginning around August of last year, a series of
political and economic developments ranging from
trade tariffs to rising interest rates led to a sharp
increase in investor fear and uncertainty. As a result,
investors flocked to so-called low-volatility stocks
such as consumer goods companies and utilities
that have historically been safe havens while selling
companies that historically have been more volatile,
especially banks, which were hurt so badly during
the financial crisis. The key word here, however, is
“historically.” As Warren Buffett once said, “If history
books were the key to riches, the Forbes 400 would
consist of librarians.”

Although companies in historically less volatile
sectors such as consumer products, health care and
utilities seem safe looking backward because of their
long history of dividend payments and stable results,
our analysis indicates many of these companies are
significantly overpriced and, in many cases, may
face the prospect of future dividend cuts and falling
profits. For example, over the last five years, the top
10 holdings of the S&P 500 Low Volatility Index
increased their total debt almost 50% while revenue
increased only 1.3% per year. Amazingly, the market
currently values this toxic combination of no growth
and high leverage at a rich 24 times estimated
earnings, a 30% premium to the overall market and
more than double the valuation of select high-quality
financial companies. This data makes clear where
investors feel safe they are often taking risk.

In contrast, investors have been dumping shares of
banks and other financial companies they perceive
as risky for the simple reason shares in such
companies declined a great deal in the last recession.
Importantly, this perception is based on the past
not the present or the future. What many investors
are forgetting is the companies we own not only
survived the financial crisis, but also took advantage
of the demise of many of their competitors to expand
their market share significantly and broaden their
competitive advantages. Today’s financial leaders
are not only more dominant, they are also stronger
and better capitalized than at any time in the last
50 years. As a result, the selling pressure that
has driven down the prices of select, high-quality
financial stocks to the point where they are trading
at almost half the valuation of the low-volatility
stocks mentioned has created an enormous buying
opportunity as the chart below shows.

While investors fear calamity, we expect steadily
rising dividends, increasing share repurchases
and reliable earnings to gradually change investor
perceptions so that high-quality financial holdings
could be revalued upward and take the place of
today’s richly valued dividend darlings. More
important, while so-called safe haven stocks have
been increasing their debt, the vast majority of
Davis Financial Fund’s holdings have strengthened
their balances sheets, reduced their share counts
and raised their dividends. Moreover, we have every
reason to believe these dividend increases and share
count reductions will continue for years to come as
capital ratios remain at all-time highs and dividend
payout ratios near all-time lows. We believe the
chance to own such companies at a steep discount
to the market averages should pay off handsomely
in the years ahead.

As always, our confidence includes the realistic
recognition financial stocks can be volatile and
selectivity remains critical. In particular, because
most financial services companies employ leverage,
investors must pay scrupulous attention to the risk
management culture at each company. In good
times a favorable tide lifts all the boats, making
our disciplined focus on risk management seem
overly cautious as aggressive companies quickly
expand and gain investor attention. But when bad
times inevitably come, these companies tend to
flounder, wiping out years of gains and leaving an
open field for those companies that maintained their
underwriting discipline. In the future as in the past,
we believe our success will be achieved as much by
avoiding the big losers as by picking the big winners.6

Our selectivity and focus on risk management
stand in stark contrast to passive exchange-traded
funds (ETFs). For example, we are amazed more
than 40% of the largest and most popular ETF, the
Financial Select Sector SPDR ETF (XLF),7 is invested
in only five stocks, four of which are mega-cap
banks, including two that devastated shareholders
with huge losses and permanent dilution during
the financial crisis. We consider our flexibility
and diversification an enormous advantage and
important contributor to our long-term success
versus financial stock indexes.

Keeping this note of caution in mind, the current
environment offers significant opportunities within
the financial sector. With memories of the 2007–
2008 financial crisis still vivid, investors and market
commentators remain leery of financial stocks in
general and bank stocks in particular. They assume
long-term returns have been poor and consider
business models highly risky. While true for many
financial companies, we don’t believe this to be
true for the companies that make up Davis Financial
Fund. In fact, seven of our top 10 holdings were
founded more than 100 years ago, a strong indication
of their extraordinary durability and resilience.8

4 Class A shares without a sales charge. Inception date is 5/1/91. As of December 31, 2018. Past performance
is not a guarantee of future results.5 Note: NTM P/E. Source: Standard & Poor’s, Thomson Financial, FactSet, Credit Suisse. The Forward P/E ratio is the aggregate of the Forward P/E ratios
of the S&P 500 Index’s holdings. The ratio is not a forecast of performance and is calculated for each security by dividing the current ending price of the
stock by a forecast of its projected Earnings Per Share (EPS).6 There is no guarantee Davis Financial Fund will continue to deliver consistent investment performance. Past performance is not a guarantee of future
results.7 Not a solicitation for XLF, which is offered under a separate prospectus and is not affiliated with Davis Selected Advisers, L.P. or Davis Financial
Fund. See the endnotes for a description of some of the material differences between traditional mutual funds and ETFs, and for a description of the
material differences between the Fund and XLF. 8 Holdings are subject to change.

Portfolio Manager Update

More than a decade ago, Pierce Crosbie joined
Davis Advisors as a member of our financial stock
research team. In the years since, his talent, work
ethic and intelligence have made him a valuable
research analyst and his character, ethics and commitment
have made him a trusted partner. As a
result, I am delighted he has agreed to join me as
only the second co-manager in the Davis Financial
Fund’s 27-year history.9 His promotion is as
deserved as it is overdue. Pierce and I look forward
to reporting to you as co-managers in the years and
decades ahead.

Conclusion

In 1991, we launched Davis Financial Fund because
we were convinced financial stocks represented
a rare opportunity to buy durable, well-managed
businesses at bargain prices. Our goal from the
outset was to turn this conviction into investment
results. Since then, we have outperformed
both the S&P 500 Index as well as the S&P 500
Financials Index.10

We are convinced last year’s sell-off in financial
stocks has created the same opportunity in the
select companies we hold in the Portfolio that we
saw more than a quarter of a century ago. At the
very time many of these companies are reporting
record profits with the strongest balance sheets
they have ever had, their share prices are trading
at significant discounts to the market averages.
Now as then, our investment case is simple:
over the long term, economic reality trumps
market sentiment. As a result, business value and
stock prices eventually converge. Since the Fund’s
inception, this convergence has created wealth for
our shareholders, growing a $10,000 investment
to more than $180,000 at the end of 2018, beating
the same amount invested in the S&P 500 Index by
57% and the S&P 500 Financials Index by 82%.

Nothing provides a stronger indication of our
confidence in Davis Financial Fund than the fact my
family and colleagues have more than $65 million
invested in the Fund side by side with our clients. I
began investing my own money in the Fund in 1991
and have never sold a share.

As fellow shareholders, we are as excited about the
opportunity we see in financial companies today as
we were when we launched Davis Financial Fund.
We remain grateful for the trust you have placed in
us and mindful of our responsibility. Thank you.

10 Class A shares without a sales charge. As of 12/31/18. Past performance is not a guarantee of future results.

This report is authorized for use by existing shareholders. A current Davis
Financial Fund prospectus must accompany or precede this material if it is
distributed to prospective shareholders. You should carefully consider the
Fund’s investment objective, risks, charges, and expenses before investing.
Read the prospectus carefully before you invest or send money.

This report includes candid statements and observations regarding investment
strategies, individual securities, and economic and market conditions;
however, there is no guarantee that these statements, opinions or forecasts
will prove to be correct. These comments may also include the expression
of opinions that are speculative in nature and should not be relied on as
statements of fact.

Objective and Risks. Davis Financial Fund’s investment objective is long-term
growth of capital. There can be no assurance that the Fund will achieve
its objective. Under normal circumstances the Fund invests at least 80%
of its net assets, plus any borrowing for investment purposes, in securities
issued by companies principally engaged in the financial services sector.
Some important risks of an investment in the Fund are: common stock risk:
an adverse event may have a negative impact on a company and could
result in a decline in the price of its common stock; credit risk: The issuer
of a fixed income security (potentially even the U.S. Government) may
be unable to make timely payments of interest and principal; depositary
receipts risk: depositary receipts may trade at a discount (or premium)
to the underlying security and may be less liquid than the underlying
securities listed on an exchange; emerging market risk: securities of issuers
in emerging and developing markets may present risks not found in more
mature markets; fees and expenses risk: the Fund may not earn enough
through income and capital appreciation to offset the operating expenses
of the Fund; financial services risk: investing a significant portion of assets
in the financial services sector may cause the Fund to be more sensitive to
systemic risk, regulatory actions, changes in interest rates, non-diversified
loan portfolios, credit, and competition; focused portfolio risk: investing
in a limited number of companies causes changes in the value of a single
security to have a more significant effect on the value of the Fund’s total
portfolio; foreign country risk: foreign companies may be subject to
greater risk as foreign economies may not be as strong or diversified. As of
December 31, 2018, the Fund had approximately 16.0% of assets invested
in foreign companies; foreign currency risk: the change in value of a foreign
currency against the U.S. dollar will result in a change in the U.S. dollar
value of securities denominated in that foreign currency; headline risk:
the Fund may invest in a company when the company becomes the center
of controversy. The company’s stock may never recover or may become
worthless; interest rate sensitivity risk: interest rates may have a powerful
influence on the earnings of financial institutions; large-capitalization
companies risk: companies with $10 billion or more in market capitalization
generally experience slower rates of growth in earnings per share than
do mid- and small-capitalization companies; manager risk: poor security
selection may cause the Fund to underperform relevant benchmarks;
mid- and small-capitalization companies risk: companies with less than
$10 billion in market capitalization typically have more limited product
lines, markets and financial resources than larger companies, and may
trade less frequently and in more limited volume; and stock market risk:
stock markets have periods of rising prices and periods of falling prices,
including sharp declines. See the prospectus for a complete description
of the principal risks.

Davis Advisors is committed to communicating with our investment
partners as candidly as possible because we believe our investors benefit
from understanding our investment philosophy and approach. Our views
and opinions include “forward-looking statements” which may or may
not be accurate over the long term. Forward-looking statements can
be identified by words like “believe,” “expect,” “anticipate,” or similar
expressions. You should not place undue reliance on forward-looking
statements, which are current as of the date of this report. We disclaim any
obligation to update or alter any forward-looking statements, whether as a
result of new information, future events, or otherwise. While we believe we
have a reasonable basis for our appraisals and we have confidence in our
opinions, actual results may differ materially from those we anticipate.

Davis Funds has adopted a Portfolio Holdings Disclosure policy that
governs the release of non-public portfolio holding information. This policy
is described in the prospectus. Holding percentages are subject to change.
Click here or call 800-279-0279 for the most current public
portfolio holdings information.

We gather our index data from a combination of reputable sources,
including, but not limited to, Thomson Financial, Lipper and index websites.

The S&P 500 Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The
index is adjusted for dividends, weighted towards stocks with large market
capitalizations and represents approximately two-thirds of the total
market value of all domestic common stocks. The S&P 500 Financials is
a capitalization-weighted index that tracks the companies in the financial
sector as a subset of the S&P 500 Index.

Forward P/E ratio: Forward price to earnings (forward P/E) is a measure
of the price-to earnings (PE) ratio using forecasted earnings for the PE
calculation. Davis does not offer an opinion as to the accuracy of, and
does not guarantee, the forecasted numbers.

Traditional Mutual Funds and ETFs. Mutual funds have a sales charge
while ETFs can only be purchased on an exchange with no sales charge
but may incur transaction costs (e.g., customary brokerage commissions).
Shares of mutual funds can only be bought or sold at that day’s NAV
through a financial intermediary. Shares of ETFs can only be bought and
sold on an exchange at the current market price. Shares of ETFs cannot be
individually redeemed.

Davis Financial Fund (“Fund”) and Financial Select Sector SPDR Fund
(“XLF”). The Fund seeks long-term growth of capital while XLF seeks to
provide investment results that, before expenses, correspond generally
to the price and yield performance of publicly traded equity securities
of companies in the Financial Select Sector Index. The Fund has a sales
charge of up to 4.75% while XLF can only be purchased on an exchange
with no sales charge but may incur transaction costs (e.g., customary
brokerage commissions). The Fund’s expense ratio is 0.98% and that of
XLF is 0.13%. Shares of the Fund can only be bought or sold at that’s day’s
NAV through a financial intermediary. Shares of XLF can only be bought
and sold on an exchange at the current market price. Shares cannot be
individually redeemed. Capital gains of the Fund may be passed on to
shareholders annually while capital gains tax on XLF is incurred only upon
the sale of the shares. As of 12/31/18, the Fund had 29 holdings, while XLF
had 68 holdings.

After April 30, 2019, this material must be accompanied by a supplement
containing performance data for the most recent quarter end.

Shares of the Davis Funds are not deposits or obligations of any bank,
are not guaranteed by any bank, are not insured by the FDIC or any other
agency, and involve investment risks, including possible loss of the
principal amount invested.